Capital One produces a single product, which it sells for $8.00 per unit. Variable costs per unit equal $3.20. The company expects short-term fixed costs to be $7,200 for the coming month, at the projected sales level of 20,000 units. Management is considering several alternative actions designed to improve operating results. In conjunction with this, they have created a profit-planning (that is, a CVP) model, which can be used to evaluate different scenarios.Capital One's management believes that a 10% reduction in the selling price will increase sales volume by 10%. If this plan is implemented, then operating profit should:

Decrease by approximately $8,000 per month

1. New selling price per unit = $8.00 × 0.90 = $7.20

2. New level of sales volume = 20,000 × 1.10 = 22,000 units

3. New level of operating income = CM ? Fixed costs = [22,000 units × ($7.20 ? $3.20)/unit] ? $7,200 = $88,000 ? $7,200 = $80,800.

4. Original level of operating income = CM ? Fixed Costs = [20,000 units × ($8.00 ? $3.20)/unit] ? $7,200 = $96,000 ? $7,200 = $88,800

5. Therefore, change in monthly operating income = $80,800 ? $88,800 = ($8,000)